I assume you are asking whether it is common for the reseller to ask for an indemnity in addition to the reseller indemnifying the software company? I have certainly seen the request before, but its reasonableness depends upon the structure of the transaction. Is the reseller passing through the software to end users on the software company's license terms, or is taking the paper itself? Is the reseller going to be including any value-added component in the software when it licenses it to end users? Exactly what sort of indemnity is the reseller asking for - a third party IP infringement indemnity, or something else?

The ultimate risk to the software company depends upon the answers to these, and other related questions.

posted October 29, 2007

I assume from your question that you are not referring to intellectual property indemnification obligations. While it is possible both parties are concerned about third party suits involving intellectual property infringement, it is generally the reseller that expects an infringement indemnification from the licensor.

With respect to general mutual indemnifications, without scope, exclusions or conditions of any kind, my personal opinion is such requests are unreasonable and provide too much risk. Except under very unusual circumstances, I would almost never advise a client to accept such unquantifiable and unmanageable risk in an agreement. The only saving grace may be if the obligation to indemnify is clearly subject to a reasonable cap, or if statutorily, there is no way to contract out of that obligation is that jurisdiction.

With respect to “how common”, I find requests for mutual indemnifications are more frequent outside the US. However, that does not mean the request is more reasonable. Negotiating technique and bargaining power will influence how successful the request may be. I generally view these requests as non-starters, with a myriad of different solutions . . . just in case the every-strong “no” does not work with that prospect.

Know that in the event your obligation to indemnify is carved out of the limitations on liability, you have most likely agreed to accept responsibility for any and all consequential, incidental, etc. types of damages that may result from the acts / omissions giving rise to the claim and/or that may result from the claims themselves. In a sense, you have agreed to a contract with the potential for unlimited liability; something to consider when weighed against the desire to preserve shareholder / owner wealth.

As example of a bad (and most likely unintended) outcome of a general indemnification, in the event a technology company product has a design flaw (bug / error, schematic defect, etc.), any resulting harm / damages, third party suits, etc. that may arise from that design flaw may become the responsibility of the licensor. An end user of a reseller may sue that reseller for damages (consequential or otherwise; lost business, lost profits, etc.); the licensor as the indemnitor would then be obligated to step into the reseller’s shoes and assume responsibility. The reseller may suffer business losses, lost profits, etc. as a result.

As a general rule, would suggest the following with respect to general indemnifications:

- Limit the obligation to indemnifying for personal injury, death or damage to tangible personal property
- Limit the obligation to negligence (unless the specific jurisdiction recognizes a “gross negligence” standard; then gross negligence) or wilful misconduct
- Scope any obligation to those where the indemnifying party is solely responsible for the issue giving rise to the claim
- Exclude any claims that arise in whole or part as a result of the acts or omissions of any other party (including, without limitation, the reseller and its end users)
- Condition any obligation to indemnify on sole control, proper notice, and adequate assistance

The bottom line is the level of risk assumed in any indemnification provision is heavily dependant on the drafting of the specific provision. It is important to seek advice from a legal expert with knowledge of the local laws and practices. Only then can you tell whether you are taking on reasonable or unreasonable levels of risk.

Hope that helps!

posted October 29, 2007

The indemnities sought under the agreement shall depend upon the nature of engagement. Since your concern is based on the Reseller / Distribution agreement, it would be inevitable to seek the IPR indemnity for the product offered to be distributed. This IPR indemnity need not be mutual indemnity. Secondly it would depend on your engagement as a resell / distribution, how are you re-selling the product, is it purely resell or are you distributing / reselling along with your services. In the event you offer to re-sell along with your services then the indemnity clause has to be articulated accordingly wherein the product liability is exclusively vested with the owner and all other services offered by the re-seller shall vest with the distributor/ re-seller.

Further apart from the IPR indemnity and product liability there may be other indemnities as has been already discussed in the aforesaid responses, which would depend upon exact nature of transaction and negotiation ability of the parties in respect to relevant criteria and nature of business engagement. One must pass on such indemnities clause to the end customer back to back or disclaim all product liability / indemnities from the end customer agreement to mitigate risk.

posted October 30, 2007